Since 2010, I have assisted hundreds of individuals with their divorce, helping them to make smart decisions and avoid financial mistakes in the process. While I have encountered many challenging and unique divorces, the majority of my clients improved their experience simply by using the three tips described below:
1. Set A Budget For Your Life After Divorce
I have worked with individuals at every stage of the divorce process – from those who are still contemplating divorce to those who divorced long ago and are now confronting unintended consequences arising from mistakes that were made during their divorce negotiations. Common across all the above is the lack of attention to post-divorce budgeting while important (and final) financial decisions are being made. The single biggest contributor to a mistake-free divorce is taking time to prepare a post-separation budget.
When there is an effort made to prepare a budget, divorcing individuals often rely on marital expenses and the bills they paid while married. This provides no help or value to the spouse who will be relocating, facing a change in their income and adding new expenses that accompany their transitional period after divorce. To be effective, one needs to consider what their post-divorce lifestyle will look like and cost. Only then can optimal choices be made with respect to support payments and the division of assets.
Armed with an accurate estimate of post-divorce income and expenses, couples can make informed choices around how to best divide marital assets and debt. A properly prepared budget helps to highlight whether the financial agreement is actually viable for both parties. Finally, good budgeting can help eliminate uncertainty and speed up the negotiation, which brings down the overall cost of the divorce process.
2. Hire a Professional With Financial Expertise
Income, savings, retirement and debt are part of nearly every divorce. In some cases, money and finance-related topics are the cause of the separation itself. Given the major role finances play in divorce, why do so many couples leave those choices in the hands of the court, their attorney or their mediator? Consider this question: If you were seeking broad-based financial guidance and were not getting divorced, would you call a family law attorney or divorce mediator for help?
Who is most qualified to provide divorce financial expertise? This is an important question because the answer is not commonly known. The most logical person to contact would be one’s financial planner or CPA, however, divorce clients should be aware that some financial professionals have sought further training specific to divorce negotiations; for divorce-related financial assistance, one may want to contact a professional holding the Certified Divorce Financial Analyst™ (CDFA™) or Advanced Divorce Financial Analyst® (ADFA®) credential. Both credentials are sponsored by the Institute for Divorce Financial Analysts, which has been providing specialized pre-divorce financial planning education and certification since 1993.
The takeaway for this second tip is certainly not to discredit family law attorneys and divorce mediators, but to recognize that better results can be achieved with collaboration between specialized professionals. I believe an efficient divorce is a divorce where specialization is utilized. When each expert focuses on his/her area of expertise, the process is quicker, less expensive and results in more optimal outcomes for the couple.
3. Put Emotions in Their Place
Divorce is an emotional event. We all know someone who is professional, level-headed and rational, but who let their emotions get the best of them during their divorce. Why is that? I recently read a revealing article that provides insight into how our brains react when extracting revenge – a common objective in divorce. The blog post titled The Upside of Irrationality and Revenge, by behavioral economist Dan Ariely, cites work where researchers had the opportunity to scan brain activity on people actively taking revenge. The findings showed that during revenge, activity increased in the part of the brain associated with the way we experience rewards. In other words, we may be hardwired to feel good when we extract revenge. Unfortunately, seeking financial revenge in the moment doesn’t typically translate to a well thought out long-term financial strategy.
The takeaway here is not to provide a solution to blocking-out naturally occurring and powerful emotional tendencies, but rather to create awareness about the potentially costly impact emotion-based decisions can have during divorce. In my experience, spiteful and emotion-based actions do nothing to meaningfully change the outcome of the divorce, but can add thousands of dollars in unnecessary costs to the process. My best advice here, is to base decision on facts, budgets, and planning based on needs; trade the short-term pleasure of revenge with a more successful financial future post-divorce.
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